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Demographic Dividend

Demographic Dividend

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Published by Hardik Patel

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Published by: Hardik Patel on Oct 10, 2012
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International Conference on Technology and Business Management March 28-30, 2011
India’s Demographic Dividend - Issues and Challenges
Arun IngleP B Suryawanshi
inglearun@gmail.com pbsurya@gmail.com Pad. Dr. Vitthalrao Vikhe Patil Foundation’s Institute of Business Management and Rural Development, Ahmednagar
India is transforming demographically, in which the population of a nation slows down and life expectancyincreases, participation of women in labor force and rate of saving increases. India has its own issues likeilliteracy, income disparity, gap between haves and have-nots; etc. This study explores demographic dividend incase of India by studying issues and challenges, the policies to be implemented and lessons to be learned fromcountries like Japan, Ireland and Thailand. By 2025, India will have over 65% population under working class.This is a unique window of opportunity for deploying resources.This study explores the benefits to be realized and the policies to be implemented; now India is well poised forbecoming a super economic power. As all developed nations will have older population by 2026, as theirpopulation is aging. It means if India can take the advantage of this situation, by proper deployment of resources, by converting the human potential in to engine of economic growth. This period of demographicdividend is an opportunity for overall growth; it’s not the guarantee for improving the standard of living. Thiswindow of opportunity demands from youth, the right skills and aptitude for employability.Developing nations like India goes through a transition phase, in which the economy shifts from agrarian toindustrial production and growth of services sector. Industrial countries have largely completed what is calledthe "demographic transition"—the transition from a largely rural agrarian society with high fertility andmortality rates to a predominantly urban industrial society with low fertility and mortality rates. At an earlystage of this transition, fertility rates fall, leading to fewer young mouths to feed. During this period, the laborforce temporarily grows more rapidly than the population dependent on it, freeing up resources for investment ineconomic development and family welfare. Other things being equal, per capita income grows more rapidly thisis the first dividend followed by second dividend which is asset accumulation.Demographic transition is the window of opportunity for implementation of development oriented Govt.policies. This one-time gift of the demographic transition is expected to provide lots of opportunities fordevelopment and economic gains.
During the transition population growth and changes in the age structure of the population are inevitable, if appropriate policies pursued.
Demographic Dividend
The debate over relationship between population growth and economic development is there since the muchcriticized theory of Malthus in 18
century. Economist focused on the size of population and the growth of nation, but the composition of population age structure was not considered until the study of Coale and Hoover(1958), but in recent years, demographers Bloom et al have studied the type of composition of 
age structure
of population and its effect on economic growth and the concept of “demographic dividend” emerged.Demographic dividend
is defined as a rise in the rate of economic growth due to a rising share of working agepeople in a population. This phenomenon occurs with a falling birth rate and the consequent shift in the agestructure of the population towards the adult working ages. It is also commonly known as the demographic giftor bonus or demographic window. With many developing countries particularly in the Asian continentexperiencing a rapid decline in fertility, there has been overwhelming optimism that the demographic bonus willtake these countries to greater economic heights [Bloom and Williamson 1998; Cyrus Chu and Lee 2000;Mason 1988].As generally defined, demographic dividend occurs when a falling birth rate changes the age distribution, sothat fewer investments are needed to meet the needs of the youngest age groups and resources are released forinvestments in economic development and family welfare (John Ross, 2004).India is going through this transition phase, now a view has gained ground that what matters is not the size of the population, but its age structure. However large the total population, is seen as an inevitable advantagecharacterized as a “demographic dividend”. For India the size of working age population (age15 -60 yrs) will be63.33 % in 2016 and population having age below 15 years will be 27.73% (National population policyprediction). Given the availability of work and the resulting increased employment opportunities, the scenario
International Conference on Technology and Business Management March 28-30, 2011
721will be positive. As per study of C P Chandrasekhar et al, (EPW, Dec, 9, 2006) everything else remaining thesame, the higher the proportion of workers to non-workers, the larger would be the surplus.By 2025, India would have begun to come out of the 'demographic bonus' phase where the growth rate of working-age population exceeds that of total population. India is expected to go through this phase during 2020-25. Increasing labour productivity, health, safety, saving potential and education standard are prerequisite, forrealizing the benefits of demographic dividend.
Demographic Dividend for India
The demographic dividend-this phenomenon occurs with a falling birth rate and the consequent shift in the agestructure of the population towards the adult working ages. It is also commonly known as the demographic giftor bonus or demographic window. With many developing countries particularly in the Asian continentexperiencing a rapid decline in fertility, there has been widespread optimism that the demographic bonus willtake these countries to greater economic heights [Asian Development Bank 1997; Bloom and Williamson 1998;Cyrus Chu and Lee 2000; Mason 1988].
 Registrar General of India
Graph 2.1
Population of India from 1901-2001
It is evident from the graph that, population growth rate is on the decline since 1991. The population is risingbut, will going to stabilize from 2010 to 2020. India's fertility rate - that is, the average number of children awoman expects to have fallen to used to be 3.8 in 1990. This has fallen to 2.9 and is expected to fall further.Since women had high fertility earlier we now have a sizeable number of people in the age-group 0-15 years.(28% as per NPP 2000)A nation's "dependency ratio" is the ratio of the dependent population to the working-age population. In thecase of India this turns out to be 0.6. Bangladesh's dependency ratio is 0.7, Pakistan's 0.8, Brazil's 0.5. It isexpected that, in 2020, the average age of an Indian will be 29 years, compared to 37 for China and 48 forJapan; and, by 2030, India's dependency ratio should be just over 0.4. Reduction in dependency ratio indicatethat there will be rise in no of worker population, more women workers will join the working class and savingrate will also increase. This transition is critical for achieving second demographic dividend, which isaccumulation of assets.Human beings save most during the working years of their lives. When they are children, they clearlyconsume more than they earn, and the situation is the same during old age. Hence, a decline in the nation'sdependency ratio is usually associated with a rise in the average savings rate.
International Conference on Technology and Business Management March 28-30, 2011
 Registrar General of India
Graph 2.2
Falling Birth Rate and Death Rate from 1971-2001
Due to improved health care facilities in India, the death rate is on decline, this indicate that by the year 2016persons above age of 60 will increase and will be 8.94% of the total population. This demand more seriousprovision for heath care and social security. See table 2.1.
Table 2.1
 Age Composition as % of Total Population
Year Below 5 Years Between 0-15Between > 15 - 59Years+ 60Years
1991 12.80 37.76 55.58 6.672001 10.70 34.33 58.70 6.972011 10.10 28.48 63.38 8.142016 9.7 27.73 63.33 8.94
 Registrar General of India
In 2011 around 63.38 % population is coming under working class. Here the major challenge is in front of theGovernment to create job opportunities for absorbing this population in to productive labor, for gaining firstdemographic dividend. Population estimated, 400 million between 2000 and 2025, according to the realisticscenario, as much as 86 percent of the total growth would be in the age interval 15-64. This can have a far-reaching impact on the economy. Two Harvard economists have recently revived an earlier thesis of Coale andHoover (1958) that demographic transition could contribute significantly to economic growth (Bloom andWilliamson 1998). In the context of East Asia's economic miracle, working-age population there grew at a muchfaster rate than the dependent population during 1965-90, which provided an opportunity for raising the savingrate and expanding the productive capacity of workers.
Issues and Challenges
In case of India the picture of rising portion of working population is very encouraging but, India is having itsown issues to deal with ranging from poverty to digital divide. As per 2001 census 61% is the rate of literacy,female literacy is only 47.8% this is the challenge in front of Government of India. Most of the illiterate areliving in villages and serving the agricultural sector. Annual rate of Urbanization growth is 2.4%, and 29% of population living in urban area. Now Indian government has increased spending on education to 5 % of GDP inthe latest 11
five year plan, this is very progressive move. The education in India should be skill based, so thatthe employability of students coming out of colleges will increase. There is need for improvement in skill sets,and quality of education. Growing number of workable population needs quality education, healthcare,communication and employment. The rate of unemployment in India is 10%, which is a major issue in front of the government. To realize the demographic dividend more and more jobs needs to be created.Demographic Window is defined to be that period of time in a nation's demographic evolution when theproportion of population of working age group is particularly prominent. Typically, the demographic window of opportunity lasts for 30–40 years depending upon the country. Because of the mechanical link between fertilitylevels and age structures, the timing and duration of this period is closely associated to those of fertility decline:when birth rates fall, the age pyramid first shrinks with gradually lower proportions of young population (under

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